Trump Phones, And Pfizer Reverses Price Hikes. But Why?

Healthcare
I cover science and medicine, and believe this is biology's century.

U.S. President Donald Trump pauses while speaking to members of the media on Tuesday, July 10, 2018. Photographer: Yuri Gripas/Bloomberg

Pfizer, one of the world's largest drug companies, reversed price hikes it had taken on dozens of medicines last week after a phone call between the company's chief executive, President Donald Trump, and the secretary of health and human services, Alex Azar.

In a press release, Pfizer said the prices will remain the same until Trump and Azar put in place a plan for lowering drug prices and improving patient access, or the end of the year—"whichever is sooner."

The move is particularly striking because the Pfizer CEO, Ian Read, has been one of the staunchest defenders of the pharmaceutical industry's right to take reasonable price increases. He likes to point to an economic analysis that shows that cholesterol drugs like Lipitor, which his company manufactured, generated $1.3 trillion in societal gains between 1987 and 2008 by preventing heart attacks and strokes, while costing only $305 billion in total. Even though they seem expensive, many medicines are a good buy, he's argued. He's defended price increases by pointing out that in recent years the average price of a branded medicine has gone up by only a few percentage points a year as increases and price cuts average out.

"[T]he reality is that all of the advances you see today in modern medicine, in cures or higher quality of life, the vast majority come from the use of modern pharmaceuticals," Read said at the Forbes Healthcare Summit last November. "I don't think price is an issue, I think affordability is an issue or what's an issue is the incentives in the healthcare system. That's what needs to be fixed."

Innovation's accountant: Pfizer CEO Ian ReadForbes

On May 30, Trump had promised that some drugmakers would take "massive" price cuts within two weeks. That did not happen. Instead, as the first half of the year ended, some took price increases. Pfizer took more than others, raising prices on more than 40 drugs, with many of the increases in list price amounting to more than 9%. (Most drugmakers have been avoiding increases of more than 10% to avoid attracting attention.) Pfizer said that its net prices, after rebates and discounts paid to middlemen in the supply chain, would be essentially flat.

The president was not happy. "Pfizer & others should be ashamed that they have raised drug prices for no reason," he tweeted on July 9. "They are merely taking advantage of the poor & others unable to defend themselves, while at the same time giving bargain basement prices to other countries in Europe & elsewhere. We will respond!"

This afternoon, he tweeted again, saying: "Just talked with Pfizer CEO and @SecAzar on our drug pricing blueprint. Pfizer is rolling back price hikes, so American patients don’t pay more. We applaud Pfizer for this decision and hope other companies do the same. Great news for the American people!"

The "blueprint" is a white paper that was offered earlier this year by administration officials containing a plethora of ideas about trying to change the way drug prices work. Sources in the industry who have talked to the administration say that Azar and his team are focusing on the rebates that pharmaceutical companies pay middlemen in the supply chain, insurers, and employers. Most of the competition in the pharmaceutical market occurs in rebates, but consumers with co-insurance or high deductibles can end up paying the list price.

But why would Read, who has defended standard industry practices, back off? When the decision was made to raise prices, Pfizer must have known it was potentially stepping into the spotlight. Does the company see benefits from Trump's plan? Was it simply the gravity of having an "extensive discussion" (Pfizer's words) with the president himself?

"I commend Pfizer for its constructive and professional approach, and its desire to work with President Trump to be part of the solution and not part of the problem," Azar said as part of a prepared statement.

Pfizer might not suffer economically much from delaying list price increases, which serve in part as a form of gamesmanship with benefit managers like Express Scripts, CVS Health, and UnitedHealth Group's Optum unit, and partly as a way of gradually but dramatically increasing a drug's price over time after it has become successful. Waiting six months isn't huge hardship. It's important that the Pfizer concession comes with a real deadline: If the system has not changed come New Year's, those price increases will go back into effect.

In the meantime, the news could be bad for some other industry players: drug wholesalers like Cardinal Health and McKesson. They do profit from higher list prices, and investors may have been assuming that drugmakers would take price increases, as they do almost very year. With mighty Pfizer having backed down, other drug makers are likely to be cautious with their pricing. For now.

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I believe this is biology's century. I've covered science and medicine for Forbes from the Human Genome Project through Vioxx to the blossoming DNA technology changing the world today. Email me, follow me on